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Banking

Abigail Hofman: On HSBC's recent reorginization

Abigail Hofman


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HSBC is a fabulous institution that hardly ever seems to put a foot wrong – it has just reported record 2005 pre-tax profits of $21 billion. Except, that is, when it comes to investment banking.

I raised one perfectly shaped eyebrow when I read that the co-head of HSBC’s corporate, investment banking and markets (CIB) division, John Studzinski, (recruited from Morgan Stanley nearly three years ago, no doubt on a king’s ransom) was to become a “special adviser” to chairman elect Stephen Green. In other words Studs was “toast”.

But my rather flabby jaw dropped precipitously when, several weeks later, a “reorganization of investment banking” was announced. Lo and behold, Studzinski was to remain as co-head of the global investment bank alongside Stuart Gulliver (who is incisively described by one wag as “the brighter side of solid”).

What an embarrassing volte-face. Do I perhaps detect the stamping of bespoke Lobb loafers by an elegant American? For it would appear Studzinski is a controversial figure.

Ask around about Studs and some unfair and uncharitable comments rain down: “grossly over-promoted... career fatigued... only now really interested in charity work and a knighthood.” Now this seems harsh on Studs. He built a great reputation in his time at Morgan Stanley, and you don’t lose your touch overnight. And he’s hardly the first person to find out that the job of transforming a commercial bank’s investment banking ambitions into reality is one of the toughest assignments of all.

But even the digs from patently jealous competitors seem quite bland when compared with the words of a female colleague. She spat in to the phone: “Studzinski has an insatiable appetite for personal publicity. He has to be the bride at every wedding and the corpse at every funeral.” Now this applies to a few other bankers I know, but I wouldn’t want it as my own epitaph.

But when it comes to the “world’s local bank”, Studs isn’t the only one who gets it in the neck. “HSBC treats its investment bank like a bastard child,” another source harrumphed. “They indulge it periodically and then hand it back to the nanny.” One major client goes further: “Investment banking is just not in the HSBC DNA,” he insists. “Its profit contribution will always be relatively meagre in the larger scheme of things.”

I disagree. HSBC cannot afford to ignore this revenue stream. In the past, lumbering commercial banks such as Barclays and Deutsche have had the vision and patience to build successful investment banking operations. So why can’t HSBC? The bank is actually halfway through a five-year plan to build up this business. But the results, it has to be said, are not stunning: despite spending millions in the past few years to hire investment bankers, 2005’s M&A league table performance was limp. Recently announced roles for Generali, E.ON and Mittal Steel are good news, although detractors mutter about conflicts and “mandates by default”. Indeed profits from the whole CIB division fell last year against a backdrop of excellent market conditions.

I hate to be mean-spirited but the recent reorganization of HSBC’s investment bank hints at rearranging the deckchairs on the Titanic. Ultimately, investment banking nirvana comes down to effective leadership, and that’s the missing piece of this jigsaw. As far as I’m concerned, the appointment of “co-heads” is normally a gigantic fudge that merely sets the stage for political infighting. And I will take a lot of convincing that the relationship between “Studs” and “Stu” is anywhere near harmonious. This one will run and run, methinks...

Just an afterthought from a humble scribe, but hasn’t the cerebral and charming 40-something Clive Bannister (yes he is the son of the fleet-of-foot Roger) performed superbly by turning round HSBC’s private bank? Together with an able team, he has virtually quintupled profits in seven years and HSBC was ranked an impressive third in Euromoney’s 2006 ‘best private bank’ poll. Not bad when you think that heavyweights like Goldman Sachs and Deutsche were relegated to ninth and 12th place respectively.

Why not give Bannister Junior the challenge of sorting out HSBC’s investment bank once and for all? With his management consulting background (he was one of the youngest ever partners at Booz Allen), he might just fix the problem.

Next month, a US bank that has lost its way and what senior management should do to prevent Armageddon...

Send me your input and feedback (abigail@euromoney.com) and let me know what’s on your mind.

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